Benefits of adapting to SaaS are evident, then why is it so hard to market SaaS products to traditional Indian businessmen.
SaaS industry is promising a great deal of growth. By 2025 the SaaS opportunity, only within the SMB (Small and Medium Business) segment, is estimated to be US $5-10Bn. Moreover, as per NAASCOM, there is significant uptick in interest among the SMBs for SAAS products. Astonishingly, these opportunities are proving latent to potential customers in India. Sample this: India has 6 SAAS unicorns with Annual Recurring Revenue (ARR) more than $1Bn. However, 60% of their revenue comes from the global market. 70% of the Indian SaaS companies (with ARR>$50Mn) have built products for both SMB as well as enterprises. The question arises- Why, in spite of interest, India’s overlooking the use of SaaS? A clear explanation lies in understanding the marketing fails of SaaS.
It seems that there is a slow adaption of SaaS products by Indian companies, especially the Small and Medium Businesses (SMBs). If the apparent benefits of adapting to SaaS are evident, then why is it so hard to market SaaS products to traditional Indian businessmen? To explore the top five challenges in marketing SaaS products to SMBs in India, one needs to dissect the selling process.
How a SaaS product is sold?
The whole idea of marketing and sales of a SaaS product starts from a) identifying a suspect b) converting her into a prospect, and finally c) into a paying customer. It happens through the following phases of development:
Awareness
Education
Selection
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A great first experience is the mandate for a successful closure. The post-trial period is a good indicator of that.
Awareness
Many times an SMB owner might not be aware of the problem he/she is having. This is particularly true for traditional businesses because they have been doing the same work for generations manually and might have developed a blind spot to recognize the need for process improvement through automation or digitization. Therefore, having the awareness of a problem is the foremost requirement in the buyer’s journey. Awareness of a problem provides the motivation required for searching for a solution.
Education
In this phase, a buyer is exploring how others are solving a similar problem that he/she is facing. In this state of mind, the buyer is ready for learning about various possible solutions including SaaS products in the market. This is the right phase for prospecting these buyers.
Selection
Once the buyer has acquired information about competing products and existing solutions relevant to him or her, a purchase or rejection decision is made. In large companies, this decision making might take longer because of the involvement of multiple stakeholders. However, for SMBs, this is fairly quick because typically the owner of the business takes a call.
5 reasons behind marketing fails for SaaS
#1 Poor Discoverability:
Incorrect Prospecting
Any product is a solution to a problem. The person facing the problem has to know that the solution exists. Therefore, SaaS product companies have to be visible to their target customers. One way to do this is by going where your customers are. In the digital world, that means being present in the relevant social media forums and platforms. The challenge with many traditional SMB businessmen is that they are not very familiar to the online platforms. So, a pertinent question to ask is: Is the marketing communication reaching the right set of audience?
Poorly executed Go-To-Market (GTM) strategy
At the early stage of the venture, SaaS entrepreneurs may not have the resources and the know-how to reach to his/her target customers. Moreover, a typical SaaS Founder is more of a tech genius than a marketing person. Hence, instead of building a well-researched go-to-market strategy, they rely on run-of-the-mill digital marketing agencies and their standard marketing approaches for user acquisition. A poorly articulated, poorly executed and ill-measured marketing strategy invariably results into sub-par outcome.
Not measuring right marketing metrics
Marketing is an iterative process. We never know at the beginning what strategy and/or tactics will work. Therefore, the only way to get to a strategy that works is to start with one, measure the right metrics and refine approaches based on the insights gathered in the previous run.
Language of marketing communication
Lastly, focus on the language. As per Indian constitution, there are 22 regional languages in India. Though English is an official language in the country, not many SMB business owners are comfortable in that language, especially the ones from tier 2 or tier 3 cities and townships. Having the entire marketing communication in English obviates a large section of the SMB business owners out of the marketing funnel.
#2 Mindset of SMB:
Let us assume a buyer persona from the SMB segment- A male, in his fifties, operating from a tier-2 or tier-3 city running a traditional business relying on manual processes. It is likely that he has experienced digital technology only recently with an upgrade from his feature to a smart phone that too when his daughter insisted. He might have a couple of computers being used by his employees or his son who helps him in the business. This man has spent his youth watching only two channels on television (Doordarshan), a couple on radio (AIR), and perhaps only Ambassador/Alto as a fancy car on the road. It is his entrepreneurial spirit, grit and hard work that have got him to where he is today i.e., owning a decently sized business and even providing livelihood to others in his small town. There’s no wonder he counts every dime and never spends without ROI.
On the other hand, a SaaS start-up Founder is university educated, likely a technology graduate who started to code at the age of 15, has the most advanced and most expensive gadgets for work and entertainment. He follows Elon Mask as his unofficial mentor, knows all the venture capital partners by heart, believes in the potential of the India story and a dreamer who wants to become a millionaire before his next birthday.
The challenge is to build a bridge between these two, bring them on the same page to solve the same problem. The gap in the mindsets is huge. On one side we have fear of technology, resistance to change, convenience of business as usual, sometimes even a lack of vision. On the other side there is impatience to embrace the ‘logical’ next step of using technology and open the door to exuberance of productivity, and growth.
Roadblocks:
Fear of technology
Lack of vision: Unable to see value/benefit
Change resistance, preference to business as usual
Price sensitivity, e.g., Obsession with ‘free’
#3 Switching Cost & customer lock-in:
A switching cost is the cost or effort a user needs to put-in to change the service provider. For example, if you are using a service provider ‘A’ for your mobile connection and later you want to switch to another service provider ‘B’ for whatever reason, how easy or difficult it is for you to migrate, defines the switching cost in this context. If there is no number portability, changing your service provider would mean you have to give away your number which may not be a preference. In that context switching cost would be high and you might be locked-in to service provider ‘A’ until you are willing to let go your number. Making number portability mandatory (by regulation, e.g., TRAI) reduces this switching cost to a great extent.
Now the question is, should a SaaS product have a low or high switching cost.
Failing to build trust, loyalty
If the switching cost is high, you can expect to lock-in your customers ensuring stability in revenue. However, your customers may not be as happy because they would be bound to your service even if they have reasons to leave. Hence, they might not subscribe to your service in the first place.
Difficulties locking-in users
If the switching cost is low, customers can feel more empowered and might take your services because they know they can leave if they are not happy later, without many repercussions. It is important to note that your customers will definitely leave if they are not happy with services.
Crowding of market (buyer’s market)
When it comes to competition, there is a dichotomy: if there is no other player in your chosen market probably that market is a myth, if there are a lot of players in the market maybe you are late. Many a times marketing efforts fail because we are solving nobody’s problem, other times we might be solving a problem that has been solved a million times before. In both cases marketing fails to acquire paid users.
#4 Limited interoperability
Portability is the ability to transfer data from one cloud service provider to another without much hassle. Interoperability on the other hand is the capability of the system components (such as application software, storage, security, etc) to function seamlessly in a new cloud environment.
In most cases, data migration is not very cumbersome these days. However, if the SaaS platform being used is not interoperable, customers using the platform for some time may be locked-in even if they want to move to a new cloud service. As discussed in the previous section, customers don’t like losing control over their choice of SaaS service providers. Therefore, well-informed customers will shy away from your SaaS product if they find out that your system has limited interoperability and may not suit their requirements in the long run.
The architecture of the entire SaaS delivery model of the SaaS product is crucial in customer retention. Even if you may get success in getting the customer to trial, he is less likely to renew when he figures out such limitations.
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A typical SaaS Founder is more of a tech genius than a marketing person.
#5 Poor Integration support:
Information and data security are a pertinent concern when using a SaaS platform. Many clients might want to keep the most sensitive data in a private cloud. There may also be some existing applications (in-house or external) the customer might want to continue to use besides the new SaaS product. This invariably leads to a requirement for system integrations for the new SaaS product to be functional for the SMB customer.
Therefore, a great first experience is the mandate for a successful closure. The post-trial period is a good indicator of that. One must deliver a great first experience so that the user converts in to a paid customer after trial period.
Impact of Marketing Fails on SaaS product
When these challenges in marketing and sales are not addresses properly, the SaaS start-up gets a lower ROI on the marketing spend. Customer acquisition cost (CAC) goes up and may become unjustifiable because of lower customer lifetime value (CLTV). Because of lower traction on user acquisition and poor unit economics (money made on every sales) investors might lose confidence on the product, market, or the team. As a result, the start-up might fold prematurely.
For a marketer (CMO/an Agency), it means that they would lose the account because the result they produced did not justify the exuberant fees they charge. They also tend to lose their position of thought leadership and brand value in the market.
The SMB customer who tried his hands at using technology for the first time gets a wrong impression of the usefulness of technology and might slip back to his position of change resistance and comfort of business as usual. Instead of becoming a cheerleader and evangelist for embracing new technology and SaaS products he becomes a naysayer in his network because he had a sub-par experience dealing with it. It might spoil the market for a similar SaaS product and elongate the technology adaptation in a segment which is already sluggish in embracing change.
So, what’s next then?
Well, the India SMB opportunity is a humongous one and the formal economy is only a fraction of the informal and semi-formal SMB economy. Undoubtedly, the benefits of technology adaptation for the SMB are evident. SMBs who would not embrace the change will remain small forever (if not shrunk to non-existence). SaaS entrepreneurs building solutions for SMBs in India would thrive only if they take a holistic approach. After all, problem-solving requires an integrated effort by designers, technology experts, and marketers in order to reach the holy grail of innovation, a product-market-fit.
The industry is brimming with opportunities and businesses are emerging. Sooner or later, someone is going to solve these problems. Are you going to be the one?
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